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Thursday, May 31, 2007

Fed "Definitely Has An Inflation Problem"

MarketWatch reports on precious metals. "Gold futures closed almost $8 an ounce higher Thursday as news that the U.S. economy slowed to a crawl in the first quarter helped boost investment demand for the precious metal. But prices still suffered a monthly loss of more than 3% with the U.S. dollar trading higher for the month of May on lower odds of a rate cut in the U.S."

"'Gold's start and end to May is quite the contrast,' said Peter Spina, an analyst at GoldSeek.com. 'The market entered the month of May with gold seeing the last of its upwards momentum run, unable to push past the $700 barrier,' he said. 'A major culprit to this was an aggressive amount of central bank selling oversupplying the market in a short period resulting in the current consolidation pattern.'"

"Gold for June delivery closed up $7.90 at $661 an ounce on the New York Mercantile Exchange after climbing as high as $662. June gold ended the week with a loss of nearly $22.50 after finishing the month of April at $683.50."

"'Despite an onslaught of bearish forecasts, gold has more than held its own,' said Peter Grandich, editor of the Grandich Letter. 'This has caused some of the shorts to grow nervous. We could see panic covering on a move above $665' in gold, said Grandich."

"The market is approaching a season that is typically 'the lull in investment demand for precious metals on an annual basis,' said Neal Ryan, director of economic research at Blanchard. But this summer could 'potentially be quite a different seasonal experience than those of years past,' he said."

"'We have the labor strikes, more than likely a slowdown of the increased central bank sales of late, and the market is out of favor at the same time the U.S. economy is showing some serious fatigue and the rest of the globe is continuing to grow,' he said."

"Other metals reflected gold's strength Thursday. The July silver contract closed at $13.47 an ounce, up 1.9%, or 25 cents, but down 0.8% from a month ago. September palladium added $1.50 to end at $373.25 an ounce, down more than $6 for the month, while July platinum tacked on $21.80, or 1.7%, to close at $1,285.80 an ounce, down almost $13 for the month."

From Reuters. "Europe's central banks are again likely to sell less gold this year than an agreed annual limit of 500 tonnes, despite a pick up in recent weeks, analysts say."

"The pace has risen in the recent past due to higher sales by Spain's central bank, but total selling during the current year, which ends in September, is estimated between 380 and 420 tonnes, against 396 tonnes last year and 497 tonnes in 2004-05."

"Total sales by all banks now stand at around 250 tonnes. The Austrian central bank said on Thursday it sold 14 tonnes of gold from its reserves in 2006."

"'Overall, CBGA sales are most unlikely to be maintained at this recent rate. However, we could end the agreement year a bit above 400 tonnes, rather than at or below the level,' Philip Klapwijk, chairman of metals consultancy GFMS Ltd, said."

The Street.com. "An increase in a key inflation measure had investors scrambling to buy hard assets and sent precious metals rallying Thursday in New York. Helping the metals was a report from the Commerce Department on the economy. The government said that gross domestic product grew at only a 0.6% annual pace in the first three months of the year, but the chain deflator, which measures prices of goods and services, jumped 4%, more than double the rate in the fourth quarter."

"Indeed, the minutes of the last Fed meeting, released during the prior session, indicated that policymakers still have the threat of rising prices on their radar. Even though officials are closely monitoring the slowdown in housing, their primary concern appears to remains inflation."

"Elsewhere, there was more evidence of some investors losing their love for streetTracks Gold Shares, the largest gold exchange-traded fund. New figures show bullion holdings by the ETF dropped nine tons Wednesday to 464 tons. Gold Shares inventories, which are held in London vaults, reached their peak of 501 tons on April 17 before reversing over the past few weeks."

Peak Oil, Fiat money crumbling, inflation lifting off for the Moon, a Deficit growing at 1 Trillion a year, war in Iraq we can't leave because of Peak Oil, it is time to secure all water tight hatches and doors, and take on Ballast (GOLD & SILVER) in the lower holds, raise the storm jib.

True. True. But the question isn't whether or not gold and silver are going up. The question is: when the Asian markets crash will they be decimated in the near term.

IMHO gold and silver earn their title as the "investment of last resort" when investment alternatives evaporate. Real estate is already toast. Now if equities follow, the conditions will be right. But if last May is any example -- a collapse in equity markets will create short term carnage in metals.... and there's the rub.